FM sees a rebound next year

At a time when most economists have scaled back their target for GDP growth in FY09, Finance Minister P. Chidambaram would have us believe otherwise. At the India Economic Summit in New Delhi, he said emphatically that the Indian economy will return to the 9% growth seen in the past three years after a setback this year. The Indian economy will bounce back India is facing the spillover effect of a global recession, caused by the collapse of the US housing market and the ensuing credit crisis, the Finance Minister said.

"We are not part of the problem, but we have been invited to be part of the solution," he said. The Finance Minister said that the Government would take steps to stimulate the Indian economy and the rupee would strengthen again once capital starts flowing in. Chidambaram added that the country could miss its annual export target of US$200bn for this fiscal year due to the slowdown in developed nations. The Government may consider cutting excise duties on some products as part of efforts to boost industrial output and lift economic growth, the Finance Minister said. He told companies in the real estate, airline, hotel and two-wheeler sectors to cut prices to boost demand.

But, India Inc. did not seem to agree with the Finance Minister, with most companies rejecting the idea of pride cuts to bolster consumption. In fact, the Indian industry renewed its demand for further rate cuts in order to revive lending and thus pump-prime the sluggish economic activity. K.V. Kamath, Managing Director and CEO, ICICI Bank and President, CII, said that further interest rates cut by 200-300 bps will help improve the liquidity situation in the economy. He pointed out that although access to credit is a constraint at the moment, investment plans for most companies for the existing pipeline of projects are still intact. He also called upon the Government to use the current crisis as an appropriate opportunity to speed up pending economic reforms.